The Supreme Court of the United States holds a defendant, in a patent infringement suit, is not liable for inducing infringement under 35 U.S.C. § 271(a) when no one has directly infringed under 35 U.S.C. § 271(a) or any other statutory provision.

The opinion for a unanimous Court was delivered by Justice Alito. The decision reversed the Federal Circuit’s decision that essentially made it easier to prove that a company is liable based on the theory of induced infringement

FACTS:

The patent at issue claims a method of delivering electronic data using a “content delivery network.” The patent is assigned to the Massachusetts Institute of Technology and exclusively licensed to respondant, Akamai Technologies. One of the steps of the method includes storing certain components of a content provider’s Web site on servers provided by Akamai. This step is known as “tagging.” Petitioner Limelight Networks, Inc. performs several steps claimed in the patent. However, the customers of Limelight Networks (in an arguable assumption) perform their own tagging.

In 2006, Akamai sued Limelight in the United States District Court for District of Massachusetts for infringement. A jury, finding Limelight infringed the patent, awarded more than $40 million in damages. In view of the Federal Circuit’s decision in Muniauction v. Thomson Corp., 532 F.3d 1318 (2008), the District Court granted a motion for reconsideration by Limelight and held that Muniauction precluded a finding of direct infringment under § 271(a). A panel for the Federal Circuit affirmed. However, on en banc review, the Federal Circuit reversed holding a judgment could be found in favor of Akamai based on induced infringement. The Federal Circuit explained that liability could be found when a defendant carries out some of the steps and encourages others to carry out the remaining steps of, even if no one is liable for direct infringement.

OPINION:

In the opinion, the Court stated “[t]he Federal Circuit’s analysis fundamentally misunderstands what is means to infringe a method patent.” The Court concluded that Limelight cannot be liable for inducing infringement that never occurred directly since the steps performed were not attributed to one defendant. The Court warned that the Federal Circuit’s decision would “require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement and one for liability for inducement.” The Court also found Alkamai’s arguments comparing induced infringement to tort law unpersuasive. The case was remanded for further proceedings consistent with the Supreme Court’s opinion. The Court declined to revisit the merits of Muniauction.

Note: The Federal Circuit may revisit and/or clarify the Muniauction decision on remand. The Supreme Court acknowledged the concern that infringement could be avoided by dividing performance of method steps among multiple parties without direction or control. However, the Supreme Court is leaving the opportunity to revisit the Municauction case with the Federal Circuit.

The determination of whether a case is “exceptional” under the attorney fee-shifting provision of The Patent Act is left to a broad discretion of the District Court.

In two slip opinions rendered April 29, 2014, SCOTUS addressed issues regarding awarding attorneys fees under 35 U.S.C. § 285 to prevailing parties in “exceptional” patent infringement cases. Under 35 U.S.C. § 285, a District Court is authorized to award attorney’s fees to prevailing parties in “exceptional cases.” The CAFC had used a Brooks Furniture standard defining an “exceptional case as one which involves “material inappropriate conduct” or is both “objectively baseless” and “brought in subjective bad faith.” Under the Brooks Furniture standard, an exceptional case must be established by clear and convincing evidence.

OCTANE FITNESS

In the opinion delivered by Justice Sotomayor, the Court, in a 9-0 decision, construed the term “exceptional” in its plain and ordinary meaning and held that exceptional means “uncommon,” “rare,” and “not ordinary.” The Court held that the CAFC has applied too rigid of a standard in determining whether a case is an exception case and rejected the Brooks Furniture standard.

According to Justice Sotomayor, the § 285 statute is “patently clear” and imparts flexibility on the District Court to decide whether a case is exceptional. Octane, slip op. at 7. “[A]n ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Id. at 7-8. Therefore, the intent of the statute only requires that the litigation present either subjective bad faith or exceptionally meritless claims. Additionally, the Court held that a preponderance of the evidence standard is the appropriate standard to use to establish entitlement of fees, rather than a clear and convincing evidence standard. Id. at 11.

Reversed and Remanded

HIGHMARK

In this opinion, also delivered by Justice Sotomayor, the Court used the Octane case as precedent to unanimously hold that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s § 285 determination.” Highmark, slip op. at 5.

Vacated and Remanded

The Octane opinion can be found here and the Highmark opinion can be found here.

Note: The holdings in these cases, relaxing the standard required for district courts to determine whether a case is “exceptional” may aid in thwarting certain “patent trolls” from asserting patent claims that are meritless or brought in bad faith. Stay tuned to see how these rulings affect the litigation process, the legislative process regarding patent reform, and if the holdings will actually send the trolls back under the bridge or if the trolls will just find another way out.

The link to the transcript for the March 31, 2014 oral arguments before the SCOTUS in Alice Corp. v CLC Int’l can be found here.

Background: Alice Corporation, petitioner, owns the four patents-in-suits which are directed toward a computerized trading platform for the execution of a previously agreed-upon exchange, known as “settlement.” The inventions include electronically maintained accounts for each party in the settlement and after receiving transactions from each party, the computer system effects the exchange. The United States District Court for the District of Columbia declared each of Alice’s patents invalid for not defining patent-eligible subject matter. The U.S Court of Appeals for the Federal Circuit affirmed the decisions, in an en banc rehearing.

Issue: Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

Per usual, we will preface our thoughts with the following disclaimer: “It is generally a futile effort to predict how the Supreme Court will rule on any given issue.” That being said, below are some quotes that we found of particular interest:

1. A flexible, unitarily molded, protective device for wearing on and protecting the buttocks and hips of a person engaging in the sport of skateboarding comprising:

a. casing means having resilient means disposed therein and having a generally rectangular configuration adapted to be worn around a person’s midsection and comprising cutout sections in the upper portion providing upwardly extending arm members;
b. said arm members comprising slot means containing a belt member therethrough;
c. said rectangular casing means including a lower main body portion comprising tongue means and annular slot means at each side;
d. a pair of double stranded cord means secured to the lower central portion of said main body portion and to said annular slot means on each side of said lower body portion whereby said device is worn and secured around a person’s waist by securing said belt member to the person’s waist and securing each of said cord means around each of the person’s legs.

Kristen is a patent attorney licensed in the State of Ohio and registered to practice before the United States Patent and Trademark Office. Ms. Fries practices in the area of intellectual property and technology law, including prosecution of patent applications, in various technical fields.

She holds a Bachelor of Science in Mechanical Engineering from Miami University and is a registered Engineer-in-Training (EIT). Kristen earned a Juris Doctor, cum laude, from the University of Toledo College of Law. As a law student, she served as Note and Comment Editor for Law Review.

Prior to attending law school, Ms. Fries worked in the building materials industry as a project engineer for a manufacturing facility

We look forward to reading Kristen’s thought-provoking commentary on all things IP. Enjoy!

1. A bird perch worn on a person’s upper arm comprising:
a generally curved relatively rigid band;
means for releasably securing said band to the person’s upper arm; and
a perch extending generally horizontally outwardly from said band.

We recently had an opportunity to speak with Mr. Gil Hyatt. Gil is a well-known and prolific inventor in early computer technology, being named on more than 70 issued patents. Over the years, he has also been a successful litigant in many patent-related matters. As recently as 2012, Gil prevailed in a case at the U.S. Supreme Court against the U.S. Patent and Trademark Office (USPTO).

On January 3, 2014, Gil filed a complaint against the USPTO relating to two appealed patent applications. The appealed patent applications have been pending at the USPTO since the early 1970s, i.e., over 40 years. Gil alleges that the delay of the USPTO in these appealed patent applications is unreasonable under the Administrative Procedure Act, 5 U.S.C. § 701(1).

As a patent practitioner, the facts of this case are quite shocking. According to USPTO statistics, the typical amount of patent pendency is 28.3 months. This means that, if an inventor were to file a patent application today, the inventor would normally expect to receive a patent in about 2-1/2 years. Gil’s patent applications have been pending for 16x longer than is normal.

According to Gil’s complaint, the USPTO has engaged in “a deliberate strategy to deny him adjudication of his pending patent applications.” In both cases, the USPTO has apparently furnished no written answer to the filed appeal briefs, and no decision has been made by the Appeal Board. Many formal petitions for action on the merits and requests for status updates have purportedly been filed by Gil, also to no avail. A number of interviews with USPTO officials have also taken place, allegedly without resulting in any action.

These conversations with USPTO officials have also caused Gil to believe that the USPTO is intentionally refusing to grant any more patents to him. Indeed, no patent has issued to Gil since 1997. According to the complaint at paragraph 46:

During an in-person conference with the Director of the Technology Center responsible for examination of Mr. Hyatt’s patent applications – which is documented in the record of two of Mr. Hyatt’s patent applications – Mr. Hyatt pointed out “the scenario of applications going round and round from the examining groups to the Board and then back to the examining groups and then back to the Board.” The Director confirmed that this was the policy that the PTO was pursuing toward him.

The Hyatt patent applications apparently exist in a state of procedural limbo at the USPTO. There is no doubt that this situation is quite unusual. However, since his patent applications are not published, the “file wrappers” or official records of actions taken by both Gil and the USPTO remain secret at this time. There is also no way of knowing the importance of the inventions being claimed, or the general impact that the patents would have if they were to issue. We will be following this case closely, and are most interested in reading the USPTO’s answer to the complaint when filed.

For other articles on Mr. Gilbert P. Hyatt, and his actions in court and at the USPTO, see the following links: